Financial Guidance and Claims Bill [Lords]

Julian Knight Excerpts

2nd reading: House of Commons
Monday 22nd January 2018 Commons Chamber

[Julian Knight (Solihull) (Con)]

I shall keep my comments relatively brief, Madam Deputy Speaker, mainly because I have a chest infection and I do not think my voice will hold for too long.

The Government’s decision to move ahead with a much-needed overhaul of the financial guidance system is welcome. Likewise, it is important to put in place protections for pension savers. My hon. Friend the Member for East Renfrewshire (Paul Masterton) mentioned £8 million being lost to scamming in one month. That is just the tip of the iceberg, because that is just what is reported. Scamming is a serious and ongoing problem, so I really welcome the moves in place to help to alleviate it.

As a former personal finance journalist, I have seen at first hand the terrible consequences—not only financial but social and even medical—that can follow when people fall into problem debt or are preyed on by fraudsters. Bringing the various money advice services together will help to ensure joined-up support, and to make sure that fewer people fall through the cracks in the system.

The Bill represents welcome progress, but more needs to happen through the financial services and financial advice sectors. They need to step up to the plate. Unfortunately, in recent decades the market has not properly served what I call middle earners. It is right that this debate has focused on the most vulnerable, as the Minister said earlier and has said on other occasions. However, the financial advice wasteland that has been created serves our society very ill indeed.

Insurance and advice products used to be sold on a commission basis. Going back in time, we can remember the man from the Pru, who would effectively mass sell financial products. Companies had a clear incentive to cater to everybody. There are good reasons why we moved away from that system. As a young man, after leaving university, I worked at a now-defunct organisation called the Joseph Nelson group. As part of that job, I had to fill in client ledgers. I had no idea what their particular business was, but I noticed that, no matter whether they were in their 20s or their 80s, every client was being sold the same product. The thing that linked it all was the level of commission, which was many percentage points.

I saw at first hand organisations such as the David M Aaron group, which is also now defunct, selling swaps and other very risky investments to people to whom they should not have been sold. I have seen these high-cost, high-margin products being pushed on customers, regardless of their personal circumstances. As a personal finance journalist, I covered the implosion of Equitable Life, which saw thousands lose their life savings. It is not acceptable that a huge part of the population has subsequently been left without access to affordable advice.

Advisers have effectively migrated upwards to cover what they call high-net-worth clients. It can now be very expensive indeed to get good independent financial advice. The sector has a responsibility to step up and to find new ways to serve customers. Modern technology, from data-sifting algorithms to remote advisers, offers ways to provide personalised and accessible advice that were unimaginable when I was filling out hand-written ledgers at the Joseph Nelson group many years ago. We need more life-event advice, because the break-point of annuitisation no longer applies to most people.

The Bill is not an end in itself; it is a challenge to the financial services advice industry to do more. The huge increase in the number of self-employed people has profound implications for the personal finance landscape. For a sole trader, the line between personal and business finance is not nearly as clearcut as it is in larger, more traditional companies. Many self-employed people who fall into personal debt do so while trying to support their business. According to the Money Advice Trust, fully seven in 10 of its business debtline clients had taken out a personal loan and were using at least part of it to prop up their enterprise.

Finally, I wish to touch briefly on my work as chairman of the all-party group on financial education for young people. School offers an unparalleled opportunity to impart good habits and vital life skills to the next generation, but we still have a huge distance to travel to ensure that young people are properly equipped to navigate today’s fast-changing and complex financial landscape. The development of key skills and knowledge about money matters helps pupils and, indeed, their parents to make wise choices in later life, when innovations in financial technology and online consumer tools—not to mention the march towards a cashless society—will make previous experience and the advice of their elders an unreliable guide.

Financial Guidance and Claims Bill [Lords]

Julian Knight Excerpts

3rd reading: House of Commons & Report: 3rd sitting: House of Commons
Tuesday 24th April 2018 Commons Chamber

[Gareth Thomas]

My hon. Friend makes a good point.

In the United States, federal banking regulators regularly assess how banks are meeting local credit needs. Their assessments affect the way in which the banks are allowed to expand, merge, do acquisitions and so on. Banks can get credits towards their assessments if they invest in community banks or credit unions. Not surprisingly, both the community banking movement and the credit union movement are in even better health in the US than they are here.

Santander, HSBC and Barclays all operate in the United States, where they release far more data on lending, down to postcode level, than they do here. So surely the questions for this House are: why are they not willing to do that here, too; and, as I believe, should they be forced to do so? Last October, Santander announced an $11 billion, five-year settlement on lending and community development in eastern parts of the United States, which is the market in which it operates. That represented a 50% increase in its Community Reinvestment Act-related activity. No such equivalent increase has been announced here in the UK. The Community Reinvestment Act has cross-party support in the US, being backed by Republicans and Democrats alike, including for its data disclosure requirements. If Ministers are not prepared to accept my amendments, I would wish, with your permission, Madam Deputy Speaker, to press amendment 1 to a Division. These amendments are not onerous. Banks and other lenders record this data, and although a little work would be needed so that the information could be released in a useful format, a similar system works particularly well in the United States. In turn, the disclosure of lending details could help the single financial guidance body to make more effective choices.

I shall deal briefly with amendment 31. One key challenge for the single financial guidance body will be, as we all know, to help those who need loans, for whatever reason, to access the cheapest products—those offered by credit unions fall into that category. Surely the SFGB should be mapping where credit unions exist and what further action can be taken to promote the take-up of their services by those who are most in need. Credit unions have very low administration costs. They simply do not have the megabucks of a major bank or a payday lender’s marketing department, so many of those who most need the support that credit unions can offer are often unaware of the services they provide. Surely another challenge for the House is to work out how we help credit unions to make more information available about the products on offer. I know that Ministers are sympathetic to efforts to expand the credit union sector, so I ask them to give specific attention to thinking about what further steps can be taken to help the credit union movement to expand and to support the SFGB in achieving that aim.

[Julian Knight (Solihull) (Con)]

I refer Members to my entry in the Register of Members’ Financial Interests. I completely agree with what the hon. Gentleman says about credit unions. Does he agree that one key aspect of trying to promote them is improving their professionalism, IT and this information, and using the potential for workplace credit unions? Should we not try to bring this through the workplace and payroll?

[Gareth Thomas]

I agree with that point, which is why it has been encouraging over the past 10 to 15 years to see Departments beginning to do their bit to encourage the workplace take-up of credit unions. I hope the Economic Secretary may be able to tell me that Her Majesty’s Revenue and Customs will follow this trend soon, but the point about trying to increase professionalism is well made. Again, it would be good to hear commitments from Ministers that some of the problems that credit unions face due to poor regulation by the Financial Conduct Authority will be dealt with.